Those unused hours of annual leave are projected forward when you retire; that is, you’ll receive for that unused leave will be the one you would have gotten if you were on annual leave during all those hours. If you retire around the end of the year, any hours that cross over into the next pay year will be valued at the following year’s pay rate (remember, pay raises kick in at start of the first full pay period of January, not January 1).

Thus, some leave earned at a lower pay rate will be cashed in at a higher one. However, if you would have received a within-grade increase during that lump-sum payout period, it will not increase your hourly rate. To receive credit for that, the increase would have to have taken place no later than the day on which you retired.

As a rule, the only deductions that will be taken out are for federal taxes (and state and local taxes, if applicable). However, if you are subject to garnishment of your wages or owe a debt to the federal government, deductions will be taken for them, too.

At the end of the calendar year, the gross amount of your lump sum payment will be reported on your W-2. Because of the tax liability, the later in the year you retire, the higher those taxes may be. That’s because the lump sum will be piled on top of the salary you earned before retirement. Leaving at the beginning of a calendar year would limit the tax impact, because the lump sum payment would be added to the reduced income from your annuity.

Note: If you are reemployed in the federal service prior to the expiration of the period of annual leave you were paid for, you must refund that portion of the money which represents the time between the date you are reemployed and the expiration of the lump-sum period. That repayment will result in those hours being credited to your new annual leave account.